Strategic Business Reporting

Live Online Classes – Day 9

by: Sir Hamza Abdul Haq
IAS 19 – Employee Benefits
Prepared by: Sir Hamza Abdul Haq
Overview
Share Based Payments

Short Term Benefits Long Term Benefits Termination Benefits

Other Long Term Post Retirement

Defined Contribution Plan Defined Benefit Plan

 Post Retirement Benefit
Contribution Investment

Company Fund
1. After fixed contribution
Benefits Paid Company has no further
Defined Benefit Defined obligation.
Plan Contribution Plan
2. Investment risk are
assumed by employee or
third party.
3. Benefit will depend on the
assets of the fund.
 Post Retirement Benefit
Contribution Investment

Company Fund
1. Employer is unable to
Benefits Paid show that all actuarial and
Defined Benefit Defined investment risk has been
Plan Contribution Plan transferred to another
party
2. Benefit is normally a pre-
defined formula not solely
linked to the amount of
contribution
Post Employment Benefit
Defined Contribution Plan
 Company pays a fixed contribution
into a separate fund and has no
further legal or constructive
obligation
 Actuarial and investment risks of
defined contribution plans are
assumed either by the employee or
the third party.
 Defined Benefit Plan
 Plans not defined as
contribution plans are classed
as defined benefit plans.
 If an employer is unable to
show that all actuarial and
investment risk has been
transferred to another party and
its obligations are limited to
contributions made during the
period, a plan is defined benefit.
Accounting for Defined Contribution Plan
 Contribution paid by the company is recorded as an expense.
 Any unpaid amount is treated as a liability.
 Any overpaid amount is treated as an asset only if it is expected to be
recovered, otherwise treated as an expense.
Accounting for Defined Contribution Plan
Accounting
Contributions paid is recorded as an expense.

Example
ABC Ltd has payroll costs of $5 million for the year ended 31 December 2015. The
company has a defined contribution scheme and pays pension contributions of 5%
of salary costs each year.
During the year, ABC Ltd paid $0.2m and will pay over the balance in January
2016.
 Accounting for Defined Benefit Plan
Date of
Employment Post Retirement
Retirement

Expense of benefits paid should be recorded Payment of benefits

over the employment period

1. Expense allocated to each year is
called Current Service Cost (Which
is an estimated cost)
2. All values will be recorded in present
value terms and will increase each
year due to unwinding.
3. At the end of each year the estimates
will be reassessed and the liability will
be recorded as per the new estimates.
1. Fund will be treated as an asset for the
company as the risk and reward belongs
to the company.
2. Interest earned by the fund will be the
income for the company.
3. Contribution into the fund will increase
the fund.
4. Benefits will be paid from the fund which
will decrease the fund.
Example – Defined Benefit Plan
$
PV of DBO at 1st January 2013 210m
PV of DBO at 31st December 2013 378m
FV of Plan asset at 1st January 2013 168m
FV of Plan asset at 31st December 2013 294m
Current service cost 63m
Contribution paid 105m
Benefits paid 20m
Discount rate 10%
Answer to Example
Plan Net
Particular DBO
Asset Liability
Brought forward
Interest expense / Income
Current Service Cost
Contribution paid*
Benefits paid
Re-measurement gain / loss
Carried forward
Past Service Cost
 Past service cost is the change in liability due to change in pension
entitlement.
 Past service cost may either be positive (where pension entitlements are
increased) or may be negative (where pension entitlements are reduced).
Decrease in Employees in the Plan
Decrease

Substantial Decrease No Substancial Decrease

Curtailment Past Service Cost

Curtailment and Settlement
Curtailment

With Settlement Without Settlement

Dr. DBO
Over paid Under paid
Cr. Gain on Curtailment

Dr. DBO Dr. DBO

Dr. Loss on Settlement Cr. Plan Asset
Cr. Plan Asset Cr. Gain on Settlement
Post Employment Benefit
Plan Net
Particular DBO
Asset Liability
Brought forward xx xx xx
Interest expense / Income xx xx xx
Current Service Cost xx - xx
Past Service Cost xx - xx
Curtailment and settlement (xx) (xx) (xx)/xx
Contribution paid* - xx xx
Benefits paid (xx) (xx) -
Re-measurement gain / loss (xx) /xx xx /(xx) (xx) /xx
Carried forward* xx xx xx
Example 1 – Defined Benefit Plan
$
PV of DBO at 1st January 2013 210m
PV of DBO at 31st December 2013 378m
FV of Plan asset at 1st January 2013 168m
FV of Plan asset at 31st December 2013 294m
Current service cost 63m
Past service cost - 1st January 2013 21m
Total contribution 105m
Unpaid contribution 42m
Benefits paid - 1st January 2013 20m
Curtailment 5m
Settlement 6m
Discount rate 10%
Answer to Example 1
Plan Net
Particular DBO
Asset Liability
Brought forward
Interest expense / Income
Current Service Cost
Past Service Cost
Curtailment and Settlement
Contribution paid*
Benefits paid
Re-measurement gain / loss
Carried forward*
Thank You 